ITO, WARD, PHALODI, PHALODI vs. M/S RAMA ALLURE LLP, JODHPUR

This appeal is filed by revenue and is arising out of the order of the National Faceless Appeal Centre dated 28.02.2023 [here in after (NFAC)/CIT(A)] for assessment year 2020-21 which in turn arise from the order dated 29.09.2022 passed under section 143(3) r.w.s. 144B

ITO vs. Ms Rama Allure LLP of the Income Tax Act, by the Faceless Assessing Officer, National e- Assessment Centre, Delhi.

2. The revenue has marched this appeal on the following grounds:-

“1. Whether the ld. CIT(A) was correct in the facts and in law to delete the addition of Rs. 1,83,16,53,000/- made on account of unexplained cash credits in the assessment order. 2. That the appellant reserves its right to add, amend or alter the ground(s) of appeal on or before the date, the appeal is finally heard.”

3. The fact as culled out from the records is that assessee filed its return of income for the Asst. Year 2020-21 electronically on 25.12.2020, declaring Total Income of Rs. 21,06,83,120/-. The case of the assessee selected for complete scrutiny on the following three issues:

1. Expenses incurred for Earning Exempt Income 2. Deduction from total income under chapter VIA 3. Unsecured Loans Notice u/s 143(2) dated 29.06.2021 was issued and served on the assessee electronically assessee submitted reply on 15.07.2021.

Further notice u/s 142(1) along with detailed questionnaire was issued and duly served upon the assessee 14.01.2021, 22.08.2022 and ITO vs. Ms Rama Allure LLP 02.09.2022. In response to notice u/s. 142(1) assessee submitted reply on 25.01.2022, 06.09.2022 and 08.09.2022 on efiling portal.

3.1 In this appeal the revenue has challenged the deletion of the addition of Rs. 1,83,16,53,000/- made on account of unexplained cash credits in the assessment order by the ld. CIT(A)/NFAC.

3.2 Apropos to this issue the relevant facts that on the third criteria and and of selection of the case i.e. of Unsecured Loans it is noted by the ld. AO that the assessee has received a sum of Rs. 2,09,60,81,590/- by way of unsecured loans. Out of that amount a sum of Rs. 1,83,16,53,000/- given by the partner of the firm, Shri Suresh Chander Koolwal to the firm. The assessee was asked to show caused to justify the creditworthiness of the unsecured loan given by the partner of the firm, Shri Suresh Chander Koolwal to the firm in light of the fact that Shri. Suresh Chander Koolwal's bank statement reflects that the funds have been received from Shri Arpit Khandelwal and others as a gift / loan by the assessee. The assessee submitted the reply and has also availed the opportunity of video conferencing to explain the issue. The ld. AO noted that the submission of the assessee found untenable and has further noted that the assessee has provided with ITO vs. Ms Rama Allure LLP the details of source of funds from Mr. Arpit Khandelwal. On perusal of the Information submitted by the assessee that the bank account maintained by Mr. Arpit Khandelwal with RAK Bank Dubai has deposit amounting to AED 6,26,50,000.00 and a similar amount of AED 6,23,00,078.75 is withdrawn during the year. Further, the said transaction of deposit and withdrawal happened generally on the same day. Further it is perused that, the identity of the bank account through which the money is being received is undisclosed. Accordingly, ld. AO concluded that the receipt by Mr. Arpit Khandelwal from his RAK Bank account to NRE/ NRO account is merely a bogus entry. In this regard, the Assessee has contended that Mr. Arpit Khandelwal's company in Dubai i.e. Aptus Trading DMCC have net worth of over Rs. 180 Crores. The ld. AO further noted that the balance sheet of M/s Aptus Trading DMCC suggests that over the total liabilities and equity of AED 11,30,91,351, AED 6,03,53,459 is invested by the company as a non- current asset and as per the audited financials the amount cannot be liquidated by March 2020. Accordingly, the information provided by the Assessee itself reveals that amount received by Mr. Suresh Chander Koolwal from Mr. Arpit Khandelwal and thereafter given to the Assessee firm is unexplained. Based on that ld. AO further noted that ITO vs. Ms Rama Allure LLP the assessee failed to discharge the onus to prove the creditworthiness of the party from which it has received the funds. Further, the perusal of the information submitted by the Assessee clearly reflects that Shri Suresh Chander Koolwal does not have creditworthiness to advance loans and he has taken loan from various parties. In light of these observation ld. AO noted that the loan advanced by Shri. Suresh Chand Koolwal amounting to Rs. 1,83,16,53,000/- is nothing but a bogus entry which has been routed through multiple parties on which the Assessee is trying to evade the tax and has made the addition in the total income of the assessee for the said amount of Rs. 1,83,16,53,000/-.

4. Aggrieved by the order of the Assessing Officer, assessee preferred an appeal before the National Faceless Appeal Center [ ld. CIT(A)/NFAC]. The appeal of the assessee was allowed by the NFAC based on the detailed order. Apropos to the grounds so raised by the assessee, the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:

“6. I have gone through the submissions of the appellant, assessment order, grounds of appeal and material on record. Ground Nos. 1 to 5 are in connection with the addition of Rs. 1,83,16,53,000/- made by the AO under section 68 of the Act by treating amount received as unsecured loans from partner Shri. Suresh Chander Koolwar as bogus entry. During appellate proceedings, the appellant has stated during the course of assessment

ITO vs. Ms Rama Allure LLP proceedings, the appellant has furnished the documentary evidence and explanations, as sought by the AO, relating to the Unsecured Loans amounting to Rs.2,09,60,81,590/- by way of confirmation of accounts, bank account statements, ITR-V and computation of Income, explanation and relevant documents w.r.t. sources of funds of lenders. It has been claimed by the appellant firm that it had fully the discharged its initial onus for not invoking section 68 of the Act.

7. One of the reason for selection of case for scrutiny was unsecured loan. The AO called for the details in this regard. The AO observed that Shri Suresh Chander Koolwal (one of the partner of the firm) has given unsecured loan to the appellant firm. He further observed that the lender has further taken loan from Shri Arpit Khandelwal (son of Shri Suresh Chander Koolwal). Thereafter, the AO proceeded to Iverify the creditworthiness of the lender of the lenders of lender including Shri Arpit Khandelwal, The AO concluded that the creditworthiness of Shri Arpit Khandelwal is not proved and hence made addition of the entire loan amount advanced by that Shri Suresh Chander Koolwal in the hands of the appellant firm.

8. The appellant has provided plethora of judgements in its favour on the issue under consideration. From those judgements, it is clear that the source of source need not be proved by the person who has taken unsecured loan. In other words, the appellant firm is not required to prove the creditworthiness of the lender of its partner. Some of judgements in this regard are mentioned below.

8.1 DCIT v. Pacific Industries Ltd - Jodhpur ITAT - [111 taxmann.com 32]

In this case, the Hon'ble ITAT relied on the CIT(A)'s action of deleting the addition made by AO u/s 68 of the Act by stating that the assessee discharged its initial burden to prove ICG of the transaction and there is no need to prove source of source. Relevant extracts are reproduced below:

"23. Even we have examined the order of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) on the merits...... The learned Commissioner of Income-tax (Appeals) after seeking supplementary report of the Assessing Officer and the reply of the assessee and after considering the contents of the remand reports and the reply of the assessee deleted the addition with the following observations:

‘4.3.6 The Assessing Officer has observed that on the date of debit in the account statement of creditor, there is corresponding credit entry of equal amount, however, this observation of the Assessing Officer is itself not sufficient to prove beyond doubt that the appellant routed its unaccounted income by these companies rather it proves the source in the hands of the appellant. It is usual business practice, while making loans to party, funds

ITO vs. Ms Rama Allure LLP are required to be arranged by the lender, therefore reflection of such entries in bank statement doesn't lead to draw any adverse inference against the appellant. Needless to say that appellant is not required to prove source of the source under section 68 of the Act in view of the settled judicial precedents

8.2 Prayag Tendu Leaves Processing Co. v. CIT-HC of Jharkhand

- The assessee was a partnership firm and the partners thereof, namely, RJ, and AJ, brought certain amounts to the partnership firm as capital by cheques and bank drafts. The said amount was at Rs. 9 46 lakh and at Rs. 9.52 lakh respectively.

-The assessment was made by the Assessing Officer

- The Commissioner disbelieved the sources of the fund. The assessment was taken up in revision by the Commissioner under section 263 by exercising revisional power and order was passed.

- On appeal, the Tribunal allowed the same. NCOME Held as under- "Where the assessee has given supporting material evidencing the gift or the amount received from the particular person with necessary documents, such as, copies of demand drafts and cheques etc., no addition could have been made by the Commissioner in respect of the amount received by the assessee. Under section 68, the Assessing Officer while assessing a Partnership Firm, can go behind the source of income of the partnership firm, but he cannot go to 'source of source'. The aforesaid aspect of the matter has been properly appreciated by the Tribunal by allowing the appeal preferred by the assessee-firm and no error has been committed by the Tribunal.

8.3 DCIT v. Rohini Builders - Gujrat HC [127 Taxman 523]

The Hon'ble HC in this case entirely relied on Para 7 of the ITAT judgment to say that the source of creditors is not the requirement of section 68 of the Act. We have reproduced relevant part of Para 7 of the judgement of Tribunal:

7......It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723."

8.4 CIT v. Dwarkadhish Investment (P.) Ltd. - Delhi HC [194 Taxman 43] "8...............it is settled law that the assessee need not to prove the 'source of source'" 8.5 Garima Polymers (P.) Ltd. v. ACIT Delhi ITAT [131 taxmann.com 4] "8.2 It is also well settled Law assessee need not to prove the source of the source. We rely upon the Judgment of the Hon'ble Delhi High Court in the case of (1) Dwarakadhish Investment (P) Ltd. (supra) (2) Dy. CIT v. Rohini Builders [2003] 127 Taxman 523/[2002] 256 ITR 360 (Guj) and Zafa Ahmed & Co. v. CIT [2013] 30 taxmann.com 267/214 Taxman 440 (All). 8.6 It is seen that Shri Arpit Khandelwal and Shri Suresh Chander Koolwal had made transactions through bank accounts. It is also seen that another partner of the firm Smt. Manorama Koolwal has also taken loan from Shri Arpit Khandelwal and advanced the unsecured loan to the appellant firm. The AO has not touched upon this aspect in assessment order. The facts that the unsecured loans given by both the partners of the firm are on the same footings. Though this fact, it is the moot question whether the source of source can be enquired into by the AO. This question finds its answer in the judgements mentioned in para no. 8.1 to 8.5 above. Therefore, in view of the ratio laid down in the above judgements, it is apparent that the AO has travelled beyond his scope by entering into the verification of the lender of lender which is not permissible as per law. Therefore, relying on the aforesaid judgements, the addition made by the AO on account of unproved unsecured loans is hereby deleted. Accordingly, ground nos. 1 to 5 are allowed.”

5. Feeling dissatisfied from the finding of the ld. CIT(A)/NFAC, revenue has preferred this appeal challenging the deleting of the addition of Rs. 1,83,16,53,000/- made by ld. AO u/s. 68 of the Act.

5.1 In support of the ground so raised the ld. DR is heard who has relied on the findings recorded by the ld. AO in his order. The ld. DR further submitted that the transaction of unsecured loan is between the ITO vs. Ms Rama Allure LLP related parties. The firm who accepts the money is owned by the father and mother of Mr. Arpit. Mr. Arpit has provided funds to his father, Shri Suresh Chand Koolwal and in turn he has given the unsecured loans to the assessee M/s. Rama Allure LLP. Thus, the entire transaction is within the group. The ld. DR submitted that how the fund can be given without any interest. There is no reason for transferring such an amount without any negotiation of terms or interest. No agreement for the term of the unsecured loan. There is no information of negotiation of lending such a huge fund by Mr. Arpit to Shri Suresh Chand Koolwal. Thus, the assessee firm is used as conduit to move the fund. The bank balance from where the money is given is very low and the movement of the fund is almost on same day. Mr. Arpit failed to establish the source of money given to his father. The ultimate beneficiary of this fund is need to be established and therefore, he prayed to sustain the addition.

• The respondent is a registered LLP and is engaged in the business of trading in shares, securities commodities market, options, and other business relating to financial stock and commodities markets. • It e-filed its return of income for the AY 2020-21 on 25-12-2020 declaring the total income at Rs. 21,06,83,120/-. • The said return was processed u/s. 143(1) of the Act at the returned income. In the meantime, the respondent’s case was selected for ‘Complete Scrutiny’ and accordingly a notice u/s 143(2) • The assessee made a timely reply to all the statutory notices issued by the AO and also duly furnished all relevant details such names and addresses of the lenders, PAN, Confirmations, ledgers, account statement, bank statements etc. • The AO made unwarranted addition of Rs. 1,83,16,53,000/- u/s. 68 of the Act, In the order passed u/s. 143(3) of the Act r.w.s. 144B of the Act on 29- 09-2022 determining the assessee’s total income at Rs. 2,04,23,36,120/-. • The respondent highly objects this addition as while making this addition, and the ld. CIT(A) after appreciating the various facts and legal objection raised by the assessee had rightly deleted the addition made. • The finding of the ld. CIT(A) in such circumstances deserved to be upheld and the appeal filed by the revenue deserves to quashed.

Ground No. 1 Whether the Id. CIT (A) was correct in the facts and in law to delete the addition of Rs. 1,83,16,53,000/- was made on account of unexplained cash credits in assessment order Findings of AO (Page No 5 - 7 of theAssessment Order)

Relevant Para of the assessment is reproduced hereunder “4.1 TheAssessee was show caused to justify the creditworthiness of the unsecured loan given by the partner of the firm, Shri. Suresh ChanderKoolwal to the firm in light of the fact that Shri. Suresh ChanderKoolwal’s bank statement reflects that the funds have beenreceived from Shri. ArpitKhandelwal& other people as a gift/ loan by the Assessee. Assessee submitted reply on 23.09.2022 and requested for video conferencing to explain theissue. As per the request of assessee VC was fixed for 23.09.2022 at 3.00pm. The VC Schedule was intimated to the assessee through issuing a letter alongwith URL vide letter dated 23.09.2022. The assessee attended video conference on the scheduled time at 3.00 pm.

4.2 The submissions of the assesseewrt the show cause notice are perused . In this regard, the submission of the Assessee is considered and found to be untenable. Shri. Suresh ChanderKoolwal has received funds from following parties:-

4.3 Assessee has provided details in relation to some of the parties. The analysis of the details are under:- Sr. Name of Party Returned Loans Capital Remarks No. Income 1 ArpitKhandelwal 136420 Complete details not provided. Further, the Assessee holds foregin asset however, failed to discose in its return 2 Mahesh 2123220 Complete details not provided ChanderKoolwal 3 M/s Fin Cap Private No information provided Limited 4 Nirmal Kumar No information provided Agarwal 5 Sunil Kumar Nil Complete details not provided Gangwal 6 Sunil No information provided ChanderKoolwal HUF 7 Madhuram 996440 58242056 -43871521 The loan has been taken from Enterprises the Assessee and in turn money given to the Assessee's partner. 8 Rajesh Khandelwal No information provided 9 Anand Education & No information provided Research Trust 10 Padmawati Capital No information provided 11 Kamal Khandelwal No information provided HUF 12 Damodar Das No information provided Agarwal 13 Hema Agarwal No information provided 14 RakheeBaid No information provided 15 KusumKhandelwal No information provided 16 Janki D Khandelwal No information provided 17 Ram Babu Gupta 467420 12300000 16125661 On perusal of the information, it is noticed that the Assessee has received loan from Padmawati Capital Services P. Ltd. While it has also invested 10894790 in the ITO vs. Ms Rama Allure LLP same company.

4.4 Further, vide submission dated 23 September 2022 in response to show cause notice, the Assessee has provided with the details of source of funds for Mr. ArpitKhandelwal. On perusal of the information submitted that the bank account maintained by Mr. ArpitKhandelwal with RAK Bank Dubai has deposit amounting to AED 6,26,50,000 and a similar amount of AED 6,23,00,078.75 is withdrawn during the year. Further, the said transaction of deposit and withdrawal happened generally on the same day. Further it is perused that, the identity of the bank account through which the money is being received is undisclosed and accordingly, it can be concluded that the receipt by Mr.ArpitKhandelwal from his RAK Bank account to NRE/ NRO account is merely a bogus entry. In this regard, the Assessee has contended that Mr. ArpitKhandelwal’s company in Dubai i.e. Aptus Trading DMCC have networth of over Rs. 180 Crores. However, in this regard, it is pertinent to note that the balance sheet of M/s Aptus Trading DMCC suggests that over the total liabilities and equityof AED 11,30,91,351, AED 6,03,53,459 is invested by the company as a non current asset and as per the audited financials the amount cannot be liquidated by March 2020. Accordingly, the information provided by the Assessee itself reveals that amount received by Mr. Suresh ChanderKoolwal from Mr. ArpitKhandelwal and thereafter given to the Assessee is unexplained.

4.5 On perusal of the above information, it is very clear that the Assessee failed to discharge its onus to prove the creditworthiness of the party from which it has received the funds. Further, the perusal of the information submitted by the Assessee clearly reflects that Shri Suresh ChanderKoolwal does not have creditworthiness to advance loans and he has taken loan from various parties. The Assessee failed to provide the complete details of parties from which the loan was taken by Shri. Suresh Chander Koolwal. Further, wherever the detail of parties is available, it clearly shows that the parties does not have a creditworthiness to advance loans to Shri Suresh ChanderKoolwal. Moreover, the analysis of the details submitted of M/s Maduram Enterprises clearly provides that the money has been lent by the Assessee which in turn is given to Shri. Suresh ChanderKoolwal.

4.6 In light of the above, it can be very well concluded that the loan advanced by Shri Suresh Chander Koolwal amounting to Rs. 1,83,16,53,000/- is nothing but a bogus entry which has been routed through multiple parties on which the Assessee is trying to evade the tax. Accordingly, the money received by the firm from Shri. Suresh ChanderKoolwal is added to the Income of the Assessee as unexplained cash credit u/s 68 r.w.s. 115BBE of the I T Act. Penalty proceeding

ITO vs. Ms Rama Allure LLP u/s 271AAC is initiated separately for unexplained money found credited into the book of accounts of the assesse.”

Findings of the ld. CIT(A) (Page No 6 to 9 of the Appeal order)

“6. I have gone through the submissions of the appellant, assessment order, grounds of appeal and material on record. Ground Nos. 1 to 5 are in connection with the addition of Rs. 1,83,16,53,000/- made by the AO under section 68 of the Act by treating amount received as unsecured loans from partner Shri Suresh Chander Koolwal as bogus entry. During appellate proceedings the appellant has stated during the course of assessment proceedings, the appellant has furnished the documentary evidences and explanations, as sought by the AO, relating to the Unsecured Loans amounting to Rs. 2,09,60,81,590/- by way of confirmation of accounts, bank account statements, ITR-V and computation of income, explanation and relevant documents w.r.t. sources of funds of lenders. It has been claimed by the appellant firm that it had fully the discharged its initial onus for not invoking section 68 of the Act.

7. One of the reason for selection of case for scrutiny was unsecured loan. The AO called for the details in this regard. The AO observed that Shri Suresh Chander Koolwal (one of the partner of the firm) has given unsecured loan to the appellant firm. He further observed that the lender has further taken loan from Shri Arpit Khandelwal (son of Shri Suresh Chander Koolwal). Thereafter, the AO proceeded to verify the creditworthiness of the lender of the lenders of lender including Shri Arpit Khandelwal. The AO concluded that the creditworthiness of Shri Arpit Khandelwal is not proved and hence made addition of the entire loan amount advanced by that Shri Suresh Chander Koolwal in the hands of the appellant firm.

8. The appellant has provided plethora of judgments in its favour on the issue under consideration. From those judgements, it is clear that the source of source need not be proved by the person who has taken unsecured loan. In other words, the appellant firm is not required to prove the creditworthiness of the lender of its partner. Some of judgments in this regard are mentioned below.

8.1 DCIT v. Pacific Industries Ltd – Jodhpur ITAT - [111 taxmann.com 32] In this case, the Hon’ble ITAT relied on the CIT(A)’s action of deleting the addition made by AO u/s 68 of the Act by stating that the assessee discharged its initial burden to prove ICG of the transaction and there is no need to prove source of source. Relevant extracts are reproduced below:

ITO vs. Ms Rama Allure LLP “23. Even we have examined the order of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) on the merits……The learned Commissioner of Income-tax (Appeals) after seeking supplementary report of the Assessing Officer and the reply of the assessee and after considering the contents of the remand reports and the reply of the assessee deleted the addition with the following observations: 4.3.6 …..The Assessing Officer has observed that on the date of debit in the account statement of creditor, there is corresponding credit entry of equal amount, however, this observation of the Assessing Officer is itself not sufficient to prove beyond doubt that the appellant routed its unaccounted income by these companies rather it proves the source in the hands of the appellant. It is usual business practice, while making loans to party, funds are required to be arranged by the lender, therefore reflection of such entries in bank statement doesn't lead to draw any adverse inference against the appellant. Needless to say that appellant is not required to prove source of the source under section 68 of the Act in view of the settled judicial precedents.’ 8.2 PrayagTendu Leaves Processing Co. v. CIT - HC of Jharkhand - The assessee was a partnership firm and the partners thereof, namely, RJ, and AJ,brought certain amounts to the partnership firm as capital by cheques and bank drafts. The said amount was at Rs. 9.46 lakh and at Rs. 9.52 lakh respectively. - The assessment was made by the Assessing Officer - The Commissioner disbelieved the sources of the fund. The assessment was taken up in revision by the Commissioner under section 263 by exercising revisional power and order was passed. - On appeal, the Tribunal allowed the same.

Held as under- “Where the assessee has given supporting material evidencing the gift or the amount received from the particular person with necessary documents, such as, copies of demand drafts and cheques etc., no addition could have been made by the Commissioner in respect of the amount received by the assessee. Under section 68, the Assessing Officer while assessing a Partnership Firm, can go behind the source of income of the partnership firm, but he cannot go to 'source of source'. The aforesaid aspect of the matter has been properly appreciated by the Tribunal by allowing the appeal preferred by the assessee-firm and no error has been committed by the Tribunal.

ITO vs. Ms Rama Allure LLP 8.3 DCIT v. Rohini Builders – Gujrat HC [127 Taxman 523] The Hon’ble HC in this case entirely relied on Para 7 of the ITAT judgement to say that the source of creditors is not the requirement of section 68 of the Act. We have reproduced relevant part of Para 7 of the judgement of Tribunal: “7. ……It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723.”

8.4 CIT v. Dwarkadhish Investment (P.) Ltd. - Delhi HC [194 Taxman 43] “8. ………….it is settled law that the assessee need not to prove the 'source of source'.”

8.5 Garima Polymers (P.) Ltd. v. ACIT Delhi ITAT [131 taxmann.com 4] “8.2 It is also well settled Law assessee need not to prove the source of the source. We rely upon the Judgment of the Hon'ble Delhi High Court in the case of (1) Dwarakadhish Investment (P.) Ltd. (supra) (2) Dy. CIT v. Rohini Builders [2003] 127 Taxman 523/[2002] 256 ITR 360 (Guj.) and Zafa Ahmed & Co. v. CIT [2013] 30 taxmann.com 267/214 Taxman 440 (All.).

8.6 It is seen that Shri ArpitKhandelwal and Shri Suresh ChanderKoolwal had made transactions through bank accounts. It is also seen that another partner of the firm Smt. ManoramaKoolwal has also taken loan from Shri ArpitKhandelwal and advanced the unsecured loan to the appellant firm. The AO has not touched upon this aspect in assessment order. The facts that the unsecured loans given by both the partners of the firm are on the same footings. Though this fact, it is the moot question whether the source of source can be enquired into by the AO. This question finds its answer in the judgements mentioned in para No. 8.1 to 8.5 above. Therefore, in view of the ration laid down in the above judgements, it is apparent that the AO has travelled beyond his scope by entering into the verification of the lender of lender which is not permissible as per law. Therefore, relying on the aforesaid judgements, the addition made by the AO on account of unproved unsecured loans is hereby deleted. Accordingly, ground nos. 1 to 5 are allowed.”

ITO vs. Ms Rama Allure LLP Submissions of the Assessee :

The respondent humbly contends that the ld. AO has erred in law as well as on facts while making arbitrary addition of Rs. 1,83,16,53,000/- on account of treating unsecured loans from one of partner Shri Suresh ChanderKoolwal as unexplained cash credit.

The addition made is illegal, contrary to the facts and not in conformity with the law. Hence the Hon’ble CIT (A) has rightly appreciated the fact and circumstances of the cases and deleted the entire addition. We fully support the order of the Hon’ble CIT (A) and the addition so made was rightly deleted on the following facts of the case :

Identity: the identity of the partner Shri Suresh Chandra Koolwal is beyond doubt, he is partner of the present LLP. We have furnished the name & address, PAN, Income-tax return, confirmations of account and copy of bank statements to the AO. Thus, the identity of Sh. Suresh Chandra Koolwalis duly stood established.

Capacity: We have furnished confirmation of account, copy of ITR for last three years and Bank statement, further Shri Suresh Chandra Koolwal has received money from his NRI Son Shri Arpit Khandelwal, and in support of that we have submitted the copy of identity proof of Arpit Khandelwal, copy of NRO Bank Account from which the money is being transferred to partner Shri Suresh Chandra Koolwal, copy of NRE account from which the funds were transferred to NRO account, copy of foreign bank account from where and money was actually transferred to Aprit Khandelwal’s NRE account in india and the copy of audited balance sheet of Aptus Trading DMCC, Dubai where ArpitKhandelwal is 100% stake holder and Managing Director. Thus, the capacity and creditworthiness of these cash creditor to give loan to the respondentwas proved.

Genuineness of the transaction:- Genuineness of the transactions is proved by the fact that payments were made by account payee cheques.

When the three essential ingredients duly proved to the satisfaction of the AO in respect of any sum found credited in its books of accounts, there was no reason to make any addition and was therefore rightly deleted.

6. It is worthwhile to mention here that the Ld. AO did not dispute the identity of the lenders. However, in the SCN, the Ld. AO questioned about the creditworthiness one of the partner/lenders - Mr. Suresh Chander Koolwal, who is also a partner of the LLP and who provided unsecured loan/capital contribution to the LLP during the FY 19-20. The copy of the SCN is attached herewith for ready reference [P. B. Page No. 34 to 36]

At the outset, we would like to draw the attention to the fact that the Ld. AO specifically sought details of unsecured loans appearing in the books amounting to INR 2,09,60,81,590 and the respondent LLP duly provided the details of the same. Hence, clearly the Ld. AO has erred while stating in SCN that the respondent has provided details of the unsecured loans for only 3 parties. On the other hand, it is noteworthy that the Ld. AO has made contradictory observation in his order where he has listed the names of ITO vs. Ms Rama Allure LLP unsecured loans, who are lenders of Mr. Suresh Chander Koolwal (i.e. lenders of lender/ source of source) and stated in the order that the respondent has provided incomplete details of those parties. For this, we have argued hereunder that the AO cannot seek to prove source of source along with supporting judicial precedents and also the AO has passed order basis parameters that are in variation to SCN.

For the second contention in SCN - with regard to the creditworthiness of Mr. Suresh Chandra Koolwal, the respondent had filed the copies of bank statements, ITRs, of Suresh and confirmation letter. The AO did not dispute the identity of the lender. Neither the AO disputed the genuineness of the transaction. However, the Ld. AO argued that Mr. Suresh does not have creditworthiness of lending money to the LLP since the lender has taken funds from Mr. Arpit Khandelwal.

Factually, the respondent explained that Mr. Arpit Khandelwal is not any stranger but his Son (who falls within the category of relative u/s 56(2)(vii) of the Act) and therefore, such sum cannot be treated as unexplained for invoking section 68 when the source is so well known.

Further, there is no bar in the Act when money lent by a lender out of borrowed funds. Especially in the case where the source of funds and lenders are known and the transaction of loan occurs with a genuine reason. Hence, whether the funds received from Arpit Khandelwal is received as a gift to father or as a loan to father – both the transactions fulfill the requirements of respective sections for not being invoked – section 56(2)(x) r.w. 56(2)(vii) and section 68. Therefore, it will be incorrect to see the transaction of taking funds from Arpit Khandelwal from susceptible view.

7. We have submitted the following documents in support of the unsecured Loan taken from one of the partner Shri Suresh Chandar Koolwal a. Confirmation of Account which contains complete name address, and PAN [P. B. Page No. 104 to 106] b. Copy of ITR of for year ended 31.03.2020 (Income Declared Rs. 1,20,75,510.00) 31.03.2019 (income declared Rs. 1,21,66,667.00) and 31.03.2018 (income declared Rs. 88,84,114.00) at [P. B. Page No. 107 to 109] c. Copy of Bank Account from which it is established that all the transactions were routed through banking channel only. [P. B. Page No. 110 to 130]

ITO vs. Ms Rama Allure LLP As time and again we explained that his NRI son has provided the funds to invest in the firm in support of our contention we have submitted the following documents/evidences during the assessment proceedings d. Copy of Arpit’s Dubai resident proof and ID proof. [P. B. Page No.188 to 192] e. Copy of Bank statement (NRO Account) from which the funds was remitted to his father [P. B. Page No. 150 to 164]. f. Copy of Bank statement (NRE Account) from which the funds were transferred to NRO Account. [P. B. Page No.165 to 169] g. Copy of foreign Bank account from where the funds were transferred to NRE account. [P. B. Page No.170 to 173]. h. Copy of audited financials of Aptus Trading Corporation, Dubai which owned by Aprit Khendelwal to established the capacity to land more than 180.00. [P. B. Page No. 174 to 187]

Thus the respondent has fully discharged his burden of establishing the identity, creditworthiness and genuineness of the transaction of unsecured loans by producing all the relevant documents. The ld. AO has not brought any material basis to reject the documentary evidences submitted, and the addition was simply on the basis of suspicion and surmises.

However, the Ld. AO has completely disregarded the documentary evidence and explanations and stated the following reasons:

- the identity of Dubai Bank Accounts is undisclosed; hence bank entries are bogus entries; - the audited financial statements of Mr. Arpit’s company states that that over the total liabilities and equity of AED 11,30,91,351, AED 6,03,53,459 is ITO vs. Ms Rama Allure LLP invested by the company as a non-current asset and as per the audited financials the amount cannot be liquidated by March 2020.

In this regard, we have to submit that Mr. Arpit Khandelwal is not any stranger but his very own Son, it was explained before AO that Mr. Arpit provided funds to his father (ie, Mr. Suresh) for the purpose of investing in his business and which is a valid reason. Further, we have provided the banks statements as well as books of accounts maintained by Mr. Arpit(source of source) to prove the genuineness and creditworthiness of lender as well as lender of lender. From the documentary evidence, it is clear that Mr. Arpit Khandelwal has a business in Dubai, i.e. Aptus Trading DMCC, and the audited books shows the financial ability of Mr. Arpit to provide funds to his father for his business.

However, the Ld. AO disregarded these evidences by simply saying that these are untenable. The Ld. AO pervasively ignored the documents and explanations related to Arpit Khandelwal and declared the entries as Bogus.

The AO has arbitrarily without making any inquiry has doubted the identity of the Dubai Bank accounts & declared as ‘Undisclosed’. Also, the Ld. AO without assigning any strong reason or document evidence the audited financial statements of Aptus Trading DMCC and simply declared the funds provided by Mr. Arpit to Mr. Suresh as not explained.

Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—

ITO vs. Ms Rama Allure LLP (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.

Finance Act, 2012 inserts two provisos to Section 68, with effect from 1- 4-2013 (assessment year 2013-14). First proviso to enlarge the onus of a closely held company and provides that if a closely held company receives any share application money or share capital or share premium or the like, it should also establish the source of source (that is, the resident from whom such money is received). Second proviso provides that the first proviso will not apply if the receipt of sum (representing share application money or share capital or share premium etc.) is from a VCC or VCF [referred in Section 10(23FB)].

Objective of the amendment–As explained in the Memorandum: “Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc.

Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large.

In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and creditworthiness of creditor and genuineness of transaction. This additional onus needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons

ITO vs. Ms Rama Allure LLP making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income”.

From the plain reading of section, it is clear that section 68 provides that where any sum is found credited in the books of the assessee for any previous year it may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee, the Department cannot, however, act unreasonably. The Hon’ble Supreme Court in the case of Sreelekha Banerjee V/s CIT (1963) 49 ITR 112 (SC) held that the assessee has a legal obligation to explain the nature and sources of credit. In case, assessee offers an explanation but fails to tender evidence, then the AO is justified in rejecting the explanation and holding that income is from an undisclosed source. The Hon’ble Supreme Court in the case of Kale Khan Mohammad Hanif V/s CIT (1963) 50 ITR 1 (SC) held that the AO is not required to specify or prove what that source is, which from the nature of the case must be known only to the assessee.

The first proviso to section specifically provides that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Thus, it is clear that only in case of company, the AO is authorized to ask the assessee to prove source of source. However, in present case the respondent is LLP firm, hence, it is not required to prove source of source. Ignoring this vital position of the Act, right from the beginning the AO insisted for proving source of source.

ITO vs. Ms Rama Allure LLP Though for the fair play, the assessee submitted and explained before the AO that unsecured loan taken from one of the partner of the firm Sh. Suresh Chandra Koolwal, who received funds from his Dubai based son Sh. ArpitKhandelwal& other. Details in respect of Sh. Sh. Suresh Chandra Koolwal and Sh. ArpitKhandelwal were duly furnished before the AO. However, the same were ignored by conveniently.

i. 2021 - Carissa Investment (P) Ltd vs Acit, New Delhi - Del ITAT – (Annexure III) “..The assessee-company submitted copy of the ledger account, confirmations by the parties along with their ITR and other details before A.O. The A.O. without making further enquiry considered them as unexplained credits and made the addition in respect of both the creditors. The assessee-company challenged the additions before the Ld. CIT(A) who has decided the appeal of assessee-company vide Order Dated 09.06.2011 by deleting the addition. The Ld. CIT(A) noted that assessee-company has submitted copy of the ledger account of these two parties along with their ITR, PAN along with confirmations. Therefore, initial burden upon the assessee-company to prove genuineness of the credits and creditworthiness of the creditors have been proved. ….Bank statements are part of the record which also did not show if any cash have been deposited in the bank accounts of the creditors for giving loan to the assessee-company. Their bank accounts clearly show that both the creditors have sufficient funds in their bank account and all the transactions are carried-out through banking channel only. Thus, the initial burden upon the assessee-company to prove the creditworthiness of the creditors and genuineness of the transaction have been established in the matter and burden upon assessee- company have been discharged.” ii 2010 – CIT v. Dwarkadhish Investment (P.) Ltd. - Delhi HC [194 Taxman 43] (Annexure IV) “8. …the onus of proof is not a static one. Though in section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or Income-tax assessment number and ITO vs. Ms Rama Allure LLP shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the revenue. …………….One must not lose sight of the fact that it is the revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source'. iii 2017 – CIT v. Haresh D. Mehta – Bombay HC [86 taxmann.com 22] - (Annexure V) “15. Therefore, the Tribunal, in concurring with the First Appellate Authority, found that the Assessing Officer had made addition under Section 68 of the Income Tax Act without any reasonable basis.….The assessee has produced details like copy of PAN card, copy of return of income, balance sheet with all the annexures and copy of bank accounts before the Assessing Officer. If there was any doubt, the Assessing Officer should have made further investigation. Once the initial burden was discharged, the Assessing officer had then to find out that despite production of record in relation to these parties, the version of the assessee cannot be accepted.” iv 2014 - CIT vs. KamalabenSureshchandra – Gujarat HC - [367 ITR 692] - (Annexure VI) “6. It is this order of CIT [A] which the Tribunal confirmed. From the contents of the order passed by the CIT [A], it can be seen that the entire issue is based on appreciation of evidence on record. The CIT [A] having undertaken detailed exercise of reconciling the accounts and examined the source of different deposits in cash, limited the addition to Rs. 10,45,000/-. No question of law therefore, arises.”

V 2021 - Garima Polymers (P.) Ltd. v. ACIT Delhi ITAT [131 taxmann.com 4] - (Annexure VII) “8. The assessee has received unsecured loans from 05 parties. The assessee in respect of the 05 creditors has filed their confirmations which clearly show that assessee has received loans from them through banking channel. The assessee has also filed copy of the ITR and bank statement of first 04 creditors except in cases of Star TechnosoftPvt. Ltd. It would show that these 04 creditors are assessed to tax and their bank accounts clearly show they have sufficient bank balance to give loan to the assessee. These creditors have also confirmed giving loan to the assessee. In the case of Star Technosoft Pvt. Ltd., assessee has filed letter before A.O. Dated 21-5-2018 [PB-

ITO vs. Ms Rama Allure LLP 124]in which assessee has explained that the assessee is making efforts to get the bank statements and in case of urgency the same may be summoned from the concerned Bank of the creditors. The assessee also requested that this creditor may be summoned under section 131 of the Income-tax Act. However, the A.O. did not make any effort to summon this creditor for producing the bank statement and no effort is also made to call for the information from the concerned Bank of the creditor, despite the request made by the assessee. The Hon'ble Allahabad High Court in the case of MunnalalMuralidhar v. CIT [1971] 79 ITR 540 held that "A.O. should assist the assessee by exercising power to enable the assessee to produce the evidences. Otherwise, the entire assessment order would vitiate". Since the A.O. did not take any steps in the matter, therefore, no adverse inference could be drawn against the assessee in respect of the creditor Star Technosoft Pvt. Ltd. It may also be noted here that A.O. has found that income of the creditor is low as compared to the corresponding transaction, but their bank statements clearly show they have sufficient means to give loan to the assessee…” vi 2007 – CIT vs. Divine Leasing & Finance Ltd. – Delhi HC [158 Taxman 440] - (Annexure VIII) “13…….where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue’s insistence that it should prove the negative. …………The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. 23………..In this connection, it may be mentioned that in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 782 (SC) the Hon’ble Court has held that when the assessee borrows the loan and if an assessee gives names and addresses of the creditors, who are assessed to tax and full particulars is furnished then the assessee has discharged the duty. If the revenue merely issues summons under section 131 and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear. Addition cannot be made under section 68.”

ITO vs. Ms Rama Allure LLP vii 2021 - K.P. Manish Global Ingredients (P.) Ltd. vs. ACIT – Chennai ITAT [131 taxmann.com 158] - (Annexure IX) “9………..We further noted that the Hon'ble Supreme Court in the case of CIT v. Lovely Exports [Application No. 11993 of2007, dated 11-1- 2008] has clearly held that once initial burden of identity was proved, then the Assessing Officer is at liberty to proceed on the creditors in accordance with law, but said sum cannot be treated as unexplained credit of the assessee. A similar view has been expressed by the Hon'ble Supreme Court in the case of CIT v. Steller Investments Ltd. [2001] 115 Taxman 99/251 ITR 263.” viii 2003 - Nemi Chand Kothari Vs. CIT & High Court of Gauhati [264 ITR 254] - (Annexure X) “If s. 106 (of the Evidence Act) and 68 have to survive together, the logicalinterpretation will be that while the assessee has to prove only his special knowledge,i.e., the source from where he has received the credit and once he discloses the source from which he has received the money, he must also establish that so far as histransaction with his creditor is concerned, the same is genuine and his creditor hadthe creditworthiness to advance the loan, which the assessee had received. When the assessee discharges the burden so placed on him, the onus, then, shifts to theAssessing Officer if the Assessing Officer wishes to assess the said loan as theincome of the assessee from undisclosed source, to prove either by direct evidenceor indirect / circumstantial evidence that the money, which the assessee receivedfrom the creditor actually belonged to, and was owned by, the assessee himself. Ifthere is direct evidence to show that the loan received by the assessee actuallybelonged to the assessee, there will be no difficulty in assessing such amount as theincome of assessee from undisclosed source; but if there is no direct evidence in thisregard, then, the indirect or circumstantial evidence has to be conclusive in natureand must, in such circumstances, unerringly point to the assessee as the personfrom whom the money had actually flown to the hands of the sub-creditor and, then,routed through the hands of the sub-creditor to the hands of the creditor. For thispurpose, the circumstantial evidence has to be not only consistent with the hypothesisthat the money belonged to the assessee, but that this hypothesis must also beinconsistent with the hypothesis that none other than the assessee owned the saidmoney. If the conclusion be that the money received, as loan, by the assessee may ormay not belong to him or if the possibility exists that the money received, as ITO vs. Ms Rama Allure LLP loan, bythe assessee may not belong to him, then, in none of such two cases, the loanamount can be conclusively treated as income from undisclosed source of theassessee inasmuch as for assessing the money as income of the assessee fromundisclosed source, there must be clinching evidence to show that the moneyactually belonged to none but the assessee himself. If no such clinching evidence isavailable, the money may be treated as the income from disclosed source of thecreditor or of the sub-creditor, as the case may be.(Para 18)Once the assessee had established that he had received the said amounts from thecreditors aforementioned by way of cheques, the assessee must be taken to haveproved that the creditor had the creditworthiness to advance the loans. Thereafterthe burden had shifted to the Assessing Officer to prove the contrary. On merefailure on the part of the creditors to show that their sub-creditors hadcreditworthiness to advance the said loan amounts to the assessee, such failure, as acorollary, could not have been and ought not to have been, under the law, treated asthe income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee.”

Ix 2014 - CIT vs. Varinder Rawlley - High Court of P&H [366 ITR 232] - (Annexure XI) “10. It has come on record that the assessee-respondent received the amount by way of an account payee cheque. The amount was returned by way of an account payee cheque. The transactions were reflected in the bank accounts of the assessee as well as the creditor. The firm, M/s. Vishnu Jewellers, was an income-tax assessee. Its PAN card was placed on record. The assessee had filed the copy of the account of M/s. Vishnu Jewellers in his books of account. …………. It appears that no enquiry was made by the assessing authority. If the Assessing Officer had any doubts about the entry, instead of drawing any inference, the Assessing Officer could have summoned the proprietor ofthe firm. No attempt was made by the Assessing Officer to ascertain the factum of clearance of cheque from the bank and subsequent refund of the amount. Once it is so, in our view, the assessee had sufficiently discharged the burden which lay upon it to explain the nature and source of the credit entry appearing in its accounts and the burden clearly shifted in the present case on to the Department to prove to the contrary and hold that in spite of the assessee's explanation, the entries could still be held to represent the assessee's

ITO vs. Ms Rama Allure LLP income. The Assessing Officer failed to invoke the provisions under section 131 of the Act, the Tribunal has rightly concluded that it was sufficient to delete the addition. We find no error of law and facts in the findings returned by the Tribunal. x 2014 - Gujarat High Court - CIT vs. Apex Therm Packaging (P) Ltd. [42 taxmann.com 473] – Annexure XII “6. We are in complete agreement with the reasoning given by the CIT(A) as well as the ITAT. When full particulars, inclusive of the confirmation with name, address and PAN Number, copy of the Income Tax Returns, balance sheet, profit and loss accounts and computation of the total income in respect of all the creditors/lender were furnished and when it has been found that the loans were received through cheques and the loan accountwere duly reflected in the balance sheet, the Assessing Officer was not justified in making the addition of Rs.33,55,011/-. Under the circumstances, no question of law, much less substantial question of law arises in the present Tax Appeal. Accordingly, the present Tax Appeal deserves to be dismissed and is accordingly dismissed.”

The above case law is also followed by a 2020 ruling by Kolkata Tribunal in case of Mani Square Ltd. v. ACIT.

In addition to above case laws, reliance is also placed on below supportive rulings:

- 2014 - Gujarat HC - CIT v Sachitel Communications Pvt. Ltd. [227 Taxman 219]; - 2014 - Gujarat HC - CIT v. Patel RamniklalHirji [222 Taxman 15]; - 2014 – Rajasthan HC - CIT v. Jai kumarBakliwal [366 ITR 217]; - 2014 – Allahabad HC - CIT v. Shalimar Buildwell Pvt. Ltd. [220 Taxman 138]; - DCIT vs. M/s. YRV International [ITA No. 1414/Mum/2017] - Shri Ashok Nagraj Mehta vs. ACIT [ITA No. 2100/Mum/2016, and - ACIT vs. Shri DilipChimanlal Gandhi [ITA No. 7079/Mum/2016]; - Smt. Ritu Kamal Singhal vs. ITO-24(3)(4), MUMBAI - 2012 – Ahmedabad ITAT - Sarjan Corporation v. ACIT [25 taxmann.com 426]; - 2012 – Lucknow ITAT - Vishnu Jaiswal vs. CIT(A) – [23 taxmann.com 374]; ITO vs. Ms Rama Allure LLP - 2015 – Mumbai Tribunal - ACIT v. Sanjay M. Jhaveri [61 taxmann.com 28]; - 2014 – Rajasthan HC - CIT v. MoraniAutomotives (P.) Ltd. [45 taxmann.com 473].

Separately, we refer our submission herein above, where section 68 is reproduced and explained that section 68 applicable for AY 2020-21 does not require the taxpayer to establish source of source in case of unsecured loans.

The above arguments are without prejudice to our firm stand that the Ld. AO went beyond his jurisdiction and ought not to have asked the respondentto prove source of source as the same is beyond the powers granted by section 68 of the Act for AY 2020-21. Also, it is important to note that the requirement to prove source of source of funds is introduced by Finance Act, 2022 and is effective from 1st April, 2023. Hence, again, clearly the legal statute does not empower the Tax Authorities to seek the ICG of source of source of unsecured loans.

We place our strong reliance on various judicial precedents for establishing that proving source of source of funds is beyond the jurisdiction of section 68:

ITO vs. Ms Rama Allure LLP A. 2019 –DCIT v. Pacific Industries Ltd – Jodhpur ITAT - [111 taxmann.com 32] - Annexure XIIV

In this case, the Hon’ble ITAT relied on the CIT(A)’s action of deleting the addition made by AO u/s 68 of the Act by stating that the assessee discharged its initial burden to prove ICG of the transaction and there is no need to prove source of source. Relevant extracts are reproduced below:

“23. Even we have examined the order of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) on the merits……The learned Commissioner of Income-tax (Appeals) after seeking supplementary report of the Assessing Officer and the reply of the assessee and after considering the contents of the remand reports and the reply of the assessee deleted the addition with the following observations:

‘4.3.6 …..The Assessing Officer has observed that on the date of debit in the account statement of creditor, there is corresponding credit entry of equal amount, however, this observation of the Assessing Officer is itself not sufficient to prove beyond doubt that the appellant routed its unaccounted income by these companies rather it proves the source in the hands of the appellant. It is usual business practice, while making loans to party, funds are required to be arranged by the lender, therefore reflection of such entries in bank statement doesn't lead to draw any adverse inference against the appellant. Needless to say that appellant is not required to prove source of the source under section 68 of the Act in view of the settled judicial precedents.’

B. 2017 - PrayagTendu Leaves Processing Co. v. CIT - HC of Jharkhand – Annexure XV

Facts of the case- - The assessee was a partnership firm and the partners thereof, namely, RJ, and AJ, brought certain amounts to the partnership firm as capital by cheques and bank drafts. The said amount was at Rs. 9.46 lakh and at Rs. 9.52 lakh respectively. - The assessment was made by the Assessing Officer - The Commissioner disbelieved the sources of the fund. The assessment was taken up in revision by the Commissioner under section 263 by exercising revisional power and order was passed.

ITO vs. Ms Rama Allure LLP - On appeal, the Tribunal allowed the same.

Held as under- “Where the assessee has given supporting material evidencing the gift or the amount received from the particular person with necessary documents, such as, copies of demand drafts and cheques etc., no addition could have been made by the Commissioner in respect of the amount received by the assessee. Under section 68, the Assessing Officer while assessing a Partnership Firm, can go behind the source of income of the partnership firm, but he cannot go to 'source of source'. The aforesaid aspect of the matter has been properly appreciated by the Tribunal by allowing the appeal preferred by the assessee-firm and no error has been committed by the Tribunal. [Para 7]”

C. 2001 – CIT v. Metachem Industries, HC of Madhya Pradesh [116 Taxman 572] - Annexure XVI

Facts of the case- During the accounting year relevant to the assessment year in question, the Assessing Officer noticed certain credits in the books of the firm in the names of its partners which he did not accept and added to the income of the firm. On appeal, the Commissioner (Appeals) deleted the addition holding that the firm had satisfactorily accounted for the credits. On second appeal, the Tribunal affirmed the finding of the Commissioner (Appeals), relying on the decision of the Allahabad High Court in the case of SundarLal Jain v. CIT which held that credit in the account of a partner of a firm is not a loan to the firm and it is not assessable in the hands of the firm.

Held as under- “Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee-firm is over.The assessee-firm cannot ask that person who makes investment, whether the money invested is properly taxed or not. The assessee is only to explain that the investment has been made by the particular individual and it is the responsibility of that individual to account for the investment made by him. If that person owns that entry, then the burden of the assessee-firm is discharged. It is open for the Assessing Officer to undertake further investigation with regard to that individual who has deposited this amount. So far as the responsibility of the assessee is concerned, it is satisfactorily discharged.Whether that person is an ITO vs. Ms Rama Allure LLP income-tax payer or not or from where he had brought this money, is not the responsibility of the firm. The moment the firm has given a satisfactory explanation and produced the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income- tax. It is open for the Assessing Officer to take appropriate action under section 69 against the person who has not been able to explain the investment. In the present case, there was the concurrent finding of both the Commissioner (Appeals) as well as of the Tribunal that the firm had satisfactorily explained the aforesaid entries. Therefore, no addition in the instant case could be made in the hands of the assessee-firm on account of the cash credits in the names of its partners.”

D. 2003 - DCIT v. Rohini Builders – Gujrat HC [127 Taxman 523] - Annexure XVII

The Hon’ble HC in this case entirely relied on Para 7 of the ITAT judgement to say that the source of creditors is not the requirement of section 68 of the Act. We have reproduced relevant part of Para 7 of the judgement of Tribunal:

“7. ……It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the sourceas held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723.”

E. 2010 – CIT v. Dwarkadhish Investment (P.) Ltd. - Delhi HC [194 Taxman 43] - (Supra)

“8. ………….it is settled law that the assessee need not to prove the 'source of source'.”

F. 2021 Garima Polymers (P.) Ltd. v. ACIT Delhi ITAT [131 taxmann.com 4] - (Supra)

ITO vs. Ms Rama Allure LLP “8.2 It is also well settled Law assessee need not to prove the source of the source. We rely upon the Judgment of the Hon'ble Delhi High Court in the case of (1) Dwarakadhish Investment (P.) Ltd. (supra) (2) Dy. CIT v. RohiniBuilders[2003] 127 Taxman 523/[2002] 256 ITR 360 (Guj.) and Zafa Ahmed & Co. v. CIT [2013] 30taxmann.com 267/214 Taxman 440 (All.). G. 1982 - Nanak Chandra Laxman Das vs. CIT – Allahabad HC [9 Taxman 252] - Annexure XVIII “There-was no provision in the 1922 Act corresponding to this section. The section, however, gives a statutory recognition to the principle that cash credits which are not satisfactorily explained may be assessed as income. It would be seen that where any sum is found credited in the books of an assessee, the assessee is required to offer an explanation about the nature and source thereof. If the explanation offered by him is not considered as satisfactory by the ITO, the sum so credited can be treated as the assessee's income from undisclosed sources, It is not necessary for the ITO to locate the exact source of the credits. We may refer to a decision of the Supreme Court in Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1, where it has been laid down that the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee's account or in the account of a third party. Irrespective of the fact that a credit entry is in the name of the assessee or is in the name of a third party, the burden lies upon the assessee to explain the credit entry. It is correct that in certain circumstances the onus might shift to the ITO. For instance, if the assessee succeeds in showing that entries regarding cash credits in a third party's account are genuine and the sums were in fact received from the third party as loans or deposits, he had discharged the onus and in such a case it will be for the third party to explain the source of the moneys and that cannot be charged as the assessee's income in the absence of any material to indicate that they belong to the assessee.

H. KESHARWANI SHEETALAYA vs. CIT (2020) 315 CTR (All) 815 Income—Cash credit—Capital introduced by partners in the firm—Partners have shown the agricultural income in their personal returns of the past years which had been accepted by the Department as such—Partners are all identifiable and separately assessed to tax—Source of investment having been explained, in the event the AO was not satisfied, the addition could have been considered in the hands of the partners and not in the hands of the firm—Burden of proving the source of the credits having been ITO vs. Ms Rama Allure LLP sufficiently explained, the addition could not have been made in the hands of the firm in the facts of the present case I. PCIT vs. VAISHNODEVI REFOILS & SOLVEX (2018) 253 Taxman 135 (Guj) Income—Cash credit—Discharge of burden by assessee—Assessee firm having explained the cash credit to be capital contributed by its partner and the partner concerned having confirmed the same onus cost upon assessee under s. 68 stood duly discharged and Tribunal was justified deleting addition made in the hands of assessee firm—If the AO was not convinced about the creditworthiness of the partner who had made the capital contribution, the inquiry had to be made at the end of the partner and not against the firm—CIT vs. Pankaj Dyestuff Industries (IT Ref. No. 241 of 1993, dt. 6th July, 2005) relied on J. MAHAVEER EXPORTS vs. ITO Source (2014) 166 TTJ (Jp)(TM) 837 Income—Cash credit—Credit in capital accounts of partners—All the three partners of the assessee-firm are existing income-tax assessees and have confirmed that they have deposited the impugned amounts as their capital contributions with the firm—Their identity has not been doubted by the Department—Smt. K was the proprietor of OME and has filed her return in the past along with the statement of account of OME— Merely because stock register of OME was not maintained or was not produced before the AO, it could not be said that the transfer of goods from OME to the assessee-firm was not genuine—Acknowledgment of K’s return filed along with statement of account shows that her capital balance as on 31st March, 2006 was Rs. 13,73,604—Minor discrepancy in the purchase vouchers of goods transferred from OME has been explained by the assessee and a detailed note in the form of explanation has been filed—Likewise partner N has filed his returns year after year—His statement of account shows that he was having capital balance of Rs. 4,02,217 as on 31st March, 2006 which far exceeds the amount of Rs. 1,00,000 deposited by him with the assessee-firm later—Contention of the Revenue that he could not have deposited Rs. 1,00,000 with the assessee- firm as the cash in hand as on 31st March, 2006 was Rs. 11,982 only is devoid of any merit—Capital is reflected by various components apart from cash in hand, such as bank deposits, debtors, stock, etc.,—As regards partner P, his returned income for asst. yr. 2006-07 was Rs. 97,260 and for asst. yr. 2007-08 it was Rs. 1,19,260—Credit entries of N and P of Rs. 1,00,000 each are covered by the statements of account filed

ITO vs. Ms Rama Allure LLP along with their returns for the relevant year—There is no material to doubt the genuineness thereof—Thus, assessee has discharged its onus of proving the identity and creditworthiness of its creditors i.e., partners and the genuineness of the credit entries—Therefore, no case of addition on this count is made out—That apart, the credit entries in the accounts of N and P are dated 11th July, 2006 and the credit entry in the account of Smt. K on account of transfer of goods from her proprietary concern OME is dated 1st Sept., 2006, whereas the business of the assessee-firm could be started only on 5th Sept., 2006—Therefore, the capital contributions made by the partners prior to the commencement of the business of the assessee-firm could not be added to the income of the assessee

On the strength of the above submission and legal precedents as cited supra, the respondent very humbly requests that the CIT (A) has rightly deleted the entire addition, and the appeal filed by the revenue may kindly be quashed.”

6.1 The ld. AR of the assessee in addition to the written submission has also filed the following evidences:

S. No. Particulars Page No. 1 Written submission submitted before CIT(A) 1 to 19 2 Reply before AO dated 13.07.2021 20 3 Reply before AO dated 25.01.2022 21 to 24 4 Reply before AO dated 06.09.2022 25 5 Reply before AO dated 08.09.2022 26 6 Reply before AO dated 22.09.2022 27 to 31 7 Reply before AO dated 23.09.2022 32-33 8 Copy of show cause notice dated 19.09.2022 34 to 36 9 Copy of ITR, Computation of Income and complete Audit report along with 37 to 63 Balances Sheet and Profit and loss Account of Rama Allura LLP 10 Unsecured Loans details 64 11 Rama Allura Bank Statement duly marked 65 to 103 12 Confirmation of Suresh Chand Koolwal 104 to 106 13 ITR for 31.03.18, 31.09.19 and 31.03.20 of Suresh Kumar Koolwal 107 to 109 14 Copy of Bank Statement of Suresh Chand Koolwal 110 to 130 15 Confirmation of Manorama Koolwal 131 - 132 16 ITR for 31.03.18, 31.09.19 and 31.03.20 of Manorma Koolal 133 to 135 17 Copy of Bank Statement of Manorma Koolwal 136 to 149 18 Aprit Khandelwal NRO Bank Statement 150 to 164 19 Aprit Khandelwal NRE Bank Statement 165 to 169 20 Apit Khandelwal Dubai Bank RA Kelite 170 to 173 21 Aptus where Aript Khandelwal is MD Audit Report Bs 174 to 187 22 Apit UAE IT Passport etc. 188 to 192 23 Arpit Khandelwal ITR Computation 193 to 195 24 Aprit Khandelwal PAN 196 The ld. AR of the assessee based on the written submission and evidence placed on record vehemently argued that the revenue is asking the source of the assessee which is from Mr. Suresh Chandra Koolwal, his source is from Mr. Arpit Khandewal. The relevant details

ITO vs. Ms Rama Allure LLP of this source of source and his source are given. The assessee has submitted the confirmation of loan from Mr. Suresh Chand Koolwal (APB104-106) showing the date wise money given. Copy of bank statement of Mr. Suresh Chand Koolwal (APB-110-130). Copies of Income Tax Return (APB107-109). Proof in the form of bank account of Mr. Arpit Khandewal (APB150-169) maintained in India. Copy of bank account maintained by Mr. Arpit Khandewal in Dubai _RAKelite Bank (APB-170-173). UAE identity and passport of Mr. Arpit Khandelwal (APB-188-192). Copy of audit report and balance sheet of Aptus Trading DMCC (APB174-187) wherein the capital of the Mr. Arpit is 9,45,13,051 AED as on 31.12.2019 in the business of Mr. Arpit. Copy of Income Tax Return filed in India by Mr. Arpit for the year under consideration (page 193-195). None of the evidence appreciated by the ld. AO but has correctly considered by the ld. CIT(A) and has allowed the relief to the assessee. Now the revenue is trying for the third stage source asking income details of Mr. Arpit Khandewal earned by him outside India. The assessee has furnish the details of the net worth of Mr. Arpit Khandelwal which has not been doubted. Revenue has not doubted that Mr. Arpit Khandelwal is the nonresident. The transaction between Mr. Arpit and Mr. Suresh

ITO vs. Ms Rama Allure LLP Chandra are through normal banking channel and the said money given as unsecured loan in the assessee firm. The revenue has not disputed the residential status of Mr. Arpit Khandelwal and the fact that the transactions are by normal banking channel. Thus, the primary responsibility casted upon the assessee firm is duly established. Even Mr. Arpit has also filed income tax return in India for the income sourced from India. All this information already placed on record the ld. AR of the assessee prayed to consider the issue based on this evidence placed on record. The ld. DR did not file any legal decision in support of the claim made whereas the assessee has proved the identity, creditworthiness and genuineness of the transaction. Mr. Arpit has shared all the details that are required to prove the transaction of unsecured loans.

The bench noted that the case of the assessee was selected for complete scrutiny on the three issues. One of the issues of selection is related to unsecured loan accepted by the assessee. The assessee

ITO vs. Ms Rama Allure LLP has received a sum of Rs. 2,09,60,81,590/- by way of unsecured and loans. In the assessment proceeding the assessee was asked to show cause to justify the creditworthiness of the unsecured loan given by the partner of the firm, Shri Suresh Chand Koolwal. The ld. AO noted from the bank statement of Shri Suresh Chander Koolwal that the funds have been received from Shri Arpit Khandelwal and others as a gift / loan by Shri Suresh Chand Koolwal. The assessee submitted the reply and has also availed the opportunity of video conferencing to explain the issue. The ld. AO noted that the submission of the assessee found untenable and has further noted that the assessee has provided with the details of source of funds from Mr. Arpit Khandelwal. On perusal of the details of the source of the source submitted by the assessee, ld. AO noted that the bank account maintained by Mr. Arpit Khandelwal with RAK Bank Dubai has deposit amounting to AED 6,26,50,000.00 and a similar amount of AED 6,23,00,078.75 is withdrawn during the year. Further, the said transaction of deposit and withdrawal happened generally on the same day. Further it is perused that, the identity of the bank account through which the money Is being received is undisclosed by the Arpit Khandelwal and accordingly, ld. AO concluded that the receipt by Mr.

ITO vs. Ms Rama Allure LLP Arpit Khandelwal from his RAK Bank account to NRE/ NRO account is merely a bogus entry. In this regard, the Assessee has contended that Mr. Arpit Khandelwal's company in Dubai i.e. Aptus Trading DMCC have net worth of over Rs. 180 Crores. The assessee also submitted that the balance sheet of M/s Aptus Trading DMCC suggests that over the total liabilities and equity of AED 11,30,91,351, AED 6,03,53,459 is invested by the company as a non current asset. On this issue ld. AO noted that as per the audited financials the amount cannot be liquidated by March 2020. Thus, the information provided by the Assessee itself reveals that amount received by Mr. Suresh Chander Koolwal from Mr. Arpit Khandelwal and thereafter given to the Assessee firm is unexplained and as assessee failed to discharge the onus to prove the creditworthiness of the party from which it has received the funds and thus the addition was made. The ld. AO also noted that Shri Suresh Chander Koolwal does not have creditworthiness to advance loans and he has taken loan from various other parties also. In light of these observation ld. AO noted that the loan advanced by Shri. Suresh Chander Koolwal amounting to Rs. 1,83,16,53,000/- is nothing but a bogus entry which has been routed through multiple parties on which ITO vs. Ms Rama Allure LLP the Assessee is trying to evade the tax and has made the addition in the total income of the assessee for the said amount of Rs. 1,83,16,53,000/-.

7.1 On the other side bench noted that the assessee in support of the credit has filed the documentary evidence and explanations, as sought by the Ld. AO, relating to the Unsecured Loans/Capital Contribution amounting to Rs. 183,16,53,000/- by one of the partner Shri Suresh Chandra Koolwal. Thus, it is evident that the partner Shri Suresh Chandra Koolwal’s identity is beyond doubt and is partner of the present assessee LLP. The assessee LLP firm have furnished the name & address, PAN, Income-tax return, confirmations of account and copy of bank statements to the AO. Thus, the identity of Shri Suresh Chandra Koolwal’s duly stood established. As regards the capacity of the person paying the unsecured loan to the firm assessee the assessee has furnished confirmation of account, copy of ITR for last three years and Bank statement, further Shri Suresh Chandra Koolwal has received money from his NRI Son Shri Arpit Khandelwal.

In support of that the assessee submitted copy of identity proof of Arpit Khandelwal, copy of NRO Bank Account from which the money is being transferred to partner Shri Suresh Chandra Koolwal, copy of ITO vs. Ms Rama Allure LLP NRE account from which the funds were transferred to NRO account, copy of foreign bank account from where and money was actually transferred to Aprit Khandelwal’s NRE account in India and the copy of audited balance sheet of Aptus Trading DMCC, Dubai where Arpit Khandelwal is 100% stake holder and Managing Director. Thus, the capacity and creditworthiness of this unsecured loan received by the LLP firm is fully explained and justified based on the evidences. As regards the genuineness of the transactions all the payments are made by an account payee cheque and the capacity of the assessee is proved by placing on the record the source of the source. Hence, the three essential requirements of section 68 is proved based on the evidence placed on record. The revenue in support of the contentions raised in this appeal has merely raised doubt about the source of the source.

7.2 The bench also noted that Ld. AO did not dispute the identity of the lenders. The observation of the revenue is such that the transaction of the loan between the related party, but it cannot be a ground to disbelieve the loan supported by the documentary evidence and in this case, we note that the assessee firm has placed on record the details of the source of the source. All the transactions are by an ITO vs. Ms Rama Allure LLP account payee cheque. Merely the firm is owned by the father and mother of Mr. Arpit cannot make the loan transaction as an unexplained transaction. The fund provided by Mr. Suresh Chand Koolwal is given by Mr. Arpit Khandewal who is the source of the source and the assessee though placing on record various documents proved the credit worthing ness and genuineness of the transaction.

The copy of the bank statement, computation of income and credit worthiness of Mr. Arpit Khandelwal is also placed on record. Merely the transaction with the close group cannot be considered as unexplained when the assessee has explained the source of the source. The contention that the assessee firm has in addition to proving the source of the source is directed to again prove the source of that source is never ending task. The law does not enforce the assessee to prove such third line source. In the assessment order the ld. AO made an addition of Rs. 1,83,16,53,000/- being the amount given by the partner of the firm Shri Suresh Chander Koolwal to the firm, who in turn received the money from Shri Arpit Khandelwal, son of Mr. Suresh Chand Koolwal. The bench also noted that Smt.

Manorama Koolwal has also taken loan from Shri Arpit Khandelwal and has advanced unsecured loans to the assessee

ITO vs. Ms Rama Allure LLP firm the ld. AO has accepted the said loan from the same source as explained. Thus, the ld. AO cannot put the source of the source on a different footing if the same is given to father it was considered as unexplained transaction of Mr. Arpit whereas if the same is given to mother the same is considered as explained. Thus, the observation of the ld. AO is contradictory. We also note that Mr. Arpit Khandelwal is not any stranger but the firm’s partner, son. Therefore, sum so received from the related source cannot be treated as unexplained for invoking the provision of section 68 when the source is so well known and the details of that source is from normal banking transaction and all the relevant details of that source of the source is provided and he is also the assessee filling the income tax return the transaction cannot be considered as unexplained. Further, there is no bar in the Act when money lent by a lender out of borrowed funds. Especially in the case where the source of funds and lenders are known and the transaction of loan occurs with a genuine reason. Hence, whether the funds received from Arpit Khandelwal is received as a gift to father or as a loan to father – both the transactions fulfill the requirements of respective sections for not being invoked – section 56(2)(x) r.w.

56(2)(vii) and section 68. Therefore, it will be incorrect to see the ITO vs. Ms Rama Allure LLP transaction of taking funds from Arpit Khandelwal from susceptible view. The assessee has submitted enough supporting evidence in support of the unsecured Loan taken from one of the partner Shri Suresh Chandar Koolwal such as; a. Confirmation of Account which contains complete name address, and PAN [P. B. Page No. 104 to 106] b. Copy of ITR of for year ended 31.03.2020 (Income Declared Rs. 1,20,75,510.00) 31.03.2019 (income declared Rs. 1,21,66,667.00) and 31.03.2018 (income declared Rs. 88,84,114.00) at [P. B. Page No. 107 to 109] c. Copy of Bank Account from which it is established that all the transactions were routed through banking channel only. [P. B. Page No. 110 to 130] Since, the source of the fund received by Mr. Suresh Chand Koolwal is the receipt of money from his NRI son to invest in the firm in support of this contention the assessee has placed on record following documents/evidence during the assessment proceedings d. Copy of Arpit’s Dubai resident proof and ID proof. [P. B. Page No.188 to 192] e. Copy of Bank statement (NRO Account) from which the funds was remitted to his father [P. B. Page No. 150 to 164].

ITO vs. Ms Rama Allure LLP f. Copy of Bank statement (NRE Account) from which the funds were transferred to NRO Account. [P. B. Page No.165 to 169] g. Copy of foreign Bank account from where the funds were transferred to NRE account. [P. B. Page No.170 to 173]. h. Copy of audited financials of Aptus Trading Corporation, Dubai which owned by Aprit Khendelwal to established the capacity to land more than 180.00. [P. B. Page No. 174 to 187] 7.3 On careful consideration of the records so placed we are of the considered view that the assessee has discharged his burden of establishing the identity, creditworthiness and genuineness of the transaction of unsecured loans by producing all the relevant documents. The ld. AO has not brought any material basis to reject the documentary evidences submitted by the assessee. The bench noted that the addition was simply on the basis of suspicion and surmises. The assessee explained that Mr. Arpit provided funds to his father (i.e. Mr. Suresh Chand) for the purpose of investing in his business and which is a valid reason. Further, the assessee went a step ahead, to prove the source of the source by submitting evidence in the form of the banks statements as well as books of accounts maintained by Mr. Arpit (source of source) to prove the genuineness and creditworthiness of lender as well as lender of lender. From the documentary evidence, it is clear that Mr. Arpit Khandelwal has a ITO vs. Ms Rama Allure LLP business in Dubai, i.e. Aptus Trading DMCC, and the audited books show the financial ability of Mr. Arpit to provide funds to his father for his business. We note that in the complete disregard of the fact the ld. AO made the addition merely saying that the identity of Dubai Bank Accounts is undisclosed; hence bank entries are bogus entries; the audited financial statements of Mr. Arpit’s company states that that over the total liabilities and equity of AED 11,30,91,351, AED 6,03,53,459 is invested by the company as a non-current asset and as

per the audited financials the amount cannot be liquidated by March 2020. In this regard, we note that Mr. Arpit Khandelwal is not any stranger but his very own Son of Mr. Suresh Chand, it was explained before AO that Mr. Arpit provided funds to his father (i.e. Mr. Suresh) for the purpose of investing in his business and which is a valid reason. From the documentary evidence, it is clear that Mr. Arpit Khandelwal has a business in Dubai, i.e. Aptus Trading DMCC, and the audited books shows the financial ability of Mr. Arpit to provide funds to his father for his business. The ld. AO in complete disregard of these evidence by simply saying that these are untenable. The Ld. AO pervasively ignored the documents and explanations related to Arpit Khandelwal and made the addition. Thus, we are of the

Thus, to understand based on these evidence whether the provision of section 68 is attracted or not it is imperative to reproduced the provision of the section 68 of the Act the same reads as under:- Cash credits.

ITO vs. Ms Rama Allure LLP (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: 36[Provided also] that nothing contained in the first proviso 37[or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.

7.4 The bench noted that the Finance Act, 2012 inserts two provisos to Section 68, with effect from 1-4-2013 (assessment year 2013-14).

First proviso to enlarge the onus of a closely held company and provides that if a closely held company receives any share application money or share capital or share premium or the like, it should also establish the source of source (that is, the resident from whom such money is received). Second proviso provides that the first proviso will not apply if the receipt of sum (representing share application money or share capital or share premium etc.) is from a VCC or VCF [referred in Section 10(23FB)]. Considering the fact of this case this amended provision is not applicable still we note that the assessee has placed on record and discharged in proving the source of the source and for which the revenue has not placed any contrary arguments on records placed on record by the assessee. The Objective and purpose of the amendment–As explained in the Memorandum is as under :

ITO vs. Ms Rama Allure LLP “Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc. Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and creditworthiness of creditor and genuineness of transaction. This additional onus needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income”.

7.5 From the plain reading of section and purpose of amendment made in the section it is clear that section 68 provides that where any sum is found credited in the books of the assessee for any previous year it may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. Thus, it is clear that only in case of company, the AO is authorized to ask the assessee to prove source of source. However, in present case the respondent is LLP firm, hence, it is not required to prove source of source. Ignoring this vital position of the Act, right

ITO vs. Ms Rama Allure LLP from the beginning the AO insisted for proving source of source which in fact the assessee placed on record and the revenue has not placed on record the veracity of the said records where in even the source of the source is placed on record and the same were ignored by conveniently by the ld. AO. The bench noted the ld. AR of the assessee in support of the contention has relied upon the various judicial precedent which we have considered and considering the overall aspect of the case we are of the considered view that the assessee discharged its initial burden to prove the transaction. There is no need to prove source of source but even though the assessee has also placed on record the relevant details which has not been disputed. Thus, considering the overall facts of the case, considering the detailed reasoned finding of the ld. CIT(A) and fact that the ld. AO has considered the unsecured loan taken from Smt. Manorama Koolwal, who in turn has also taken loan from Shri Arpit Khandelwal. Once that source of source is considered as explained in the case of Smt. Manorama Koolwal in the case of the assessee who has also granted unsecured loans to the assessee firm, we see no reason to doubt the source of the source merely based on the fact in the case of the Shri Suresh

ITO vs. Ms Rama Allure LLP Chand Koolwal because the amount is substantial. Once, the assessee has placed on record all the details of the immediate source and the details of the source of the source and there is no reason to doubt that source when all the parties are duly assessed to tax and have filed all the requisite information with supporting evidence. Thus, we are of the considered view that the ld. CIT(A) has rightly deleted the addition made by the ld. AO for an amount of Rs. 183,16,53,000/- and we do not see any reason to deviate in the detailed and reasoned finding so recorded by the ld. CIT(A). Based on these observations we dismissed the appeal filed by the revenue.

In the result, appeal of the revenue is dismissed.

Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board.